As a millennial, it’s easy to see that generation X (and Y – sorry Mom and Dad!) have a problem. It’s called consumer debt. Overwhelming student loans, mountains of credit card debt, and underwater mortgages are the new normal.
For the first time ever in history, student loan debt surpassed credit card debt, auto-loan debt, and home equity lines of credit (HELOCS) in 2009 at nearly $800 Billon USD. And to make things worse, the average graduate from the class of 2014 left school with nearly $34,000 in student loan debt! Unfortunately, I am one part of this population, and my student loan debt is causing a trickle down effect on bigger life purchases that used to be considered the cornerstones of adult life.
Although there many great reasons why you should invest in your education, here are 4 negative ways millennials are being affected by student loan debt:
1) It’s Impossible to Buy a Home
Owning a home is an expected cultural birthright of the American lifestyle. However, being a first time home buyer is often out of reach for many student loan borrowers due to higher Debt to Income (DTI) Ratios than previous generations of first time home buyers. As with student loan refinancing, student loan debt (along with any other debts) are factored into the perceived risk of the borrower when a bank is making a lending decision.
Not to mention, many young adults are paying more towards their student loans than a typical mortgage payment! Obviously, there would be much stronger demand for mortgages and new home construction if student loans weren’t pillaging millennials’ pay checks. As for me, I won’t be able to obtain a mortgage for quite some time due to negative blemishes on my credit report, a sub-prime FICO score of 590, and an above average Debt-to-Income Ratio of 47%.
2) It’s a Bad Idea to get Married
A lot of young adults are putting off marriage even after they have found that special someone… Wedding costs that revolve around getting married (license, caterer, photographer, band, church, banquet hall, etc.) will make your head spin and pile on more debt! Also, would you want to start a lifelong commitment with your partner who is swimming in the red? Did I hear someone say get a prenup?
Early marriage tension can erupt if one or both partners are struggling to pay off debts, as there is a potential binding financial liability for both partners. Lastly, if you are considering getting married to a debtor, be sure to investigate all tax scenarios that can either benefit or negatively affect your eligibility for several federal student loan repayment programs, such as Income Based Repayment.
3) It’s Financially Irresponsible to Have Kids
There are young borrowers who have completely put off the idea of having children because of high student loan debt. I am squarely in this camp. I simply do not feel comfortable bringing a human being into this world if I knew I couldn’t afford a healthy lifestyle for my child. Paying for diapers, toys, medical expenses, baby formula, and more presents a tremendous financial challenge for someone already suffocating under significant debt.
Also, in 2013, the Department of Agriculture gathered this: for a child born in 2012, the cost to raise him/her from birth to the age of 17 is $241,080. Yikes.
4) No Bargaining Power in the Boardroom
With a mountain of student loan debt hanging over millennials’ heads, many feel like they need to take the first job offer that pays well, or worse yet, any job offer due to the lack of growth and uncertainty in the job market.
Raises and income growth for employees has stalled in recent years, making it harder for student loan borrowers to reap the expected starting salaries (read Return on Investment) that many colleges marketed. Even though the job market is still uncertain, remember employees who stay at a company for more than 2 years, get paid 50% less.
By having student loans and other consumer debt, young adults are not only reducing their spending on big ticket purchases, but altering their life path (for better or worse!). This ultimately has unknown consequences on our shaky post-recession economy. Students who are starting college need to be educated on their future debt obligations, especially depending upon the life they want and expect after graduation.
If you are in the process of paying back loans, finding the right student loan tools is important so that you can afford the things you want in your life. This will allow you to make the life choices your want, without the stress. After all, life is too short to be miserable from debt!